Morgan Stanley Wins Dismissal of $600 Million Dexia Suit

Morgan Stanley won the dismissal of a suit filed by the lender Dexia SA, which accused the bank of misrepresenting information about loans underlying more than $600 million in mortgage-backed securities.

Dexia filed the suit in New York State Supreme Court in Manhattan in January 2012 over 29 residential mortgage-backed securities bought by its unit FSA Asset Management LLC from Morgan Stanley for $626 million in 2006 and 2007. The securities were assigned to Dexia and two entities in June 2009 and had been downgraded to junk status by the time the suit was filed.

Morgan Stanley asked Justice Eileen Bransten to dismiss the case, saying that Dexia didn’t have the right to sue because the transaction assigned only ownership and contractual rights, not claims. Morgan Stanley also argued that FSA couldn’t bring fraud claims because it received face value for the securities and didn’t suffer damages.

Bransten agreed with New York-based Morgan Stanley in a ruling dated Oct. 16. FSA Asset Management didn’t assign fraud claims to Dexia and didn’t suffer damages, the judge ruled.

“FSAM suffered no losses on the RMBS it purchased; it received exactly the purchase price upon the sale to the Dexia plaintiffs,” Bransten wrote. “There is also no allegation that pass-through payments due to FSAM as holders of the participation certificates were missed. To the extent FSAM did receive pass-through payments, the RMBS were profitable to them, and there can be no claim of damages.”

Former Leader

Once the world’s leading lender to municipalities, Dexia, based in Brussels and Paris, is being dismantled by Belgium and France because it could no longer fund itself when the sovereign-debt crisis dried up short-term financing. The bank didn’t immediately respond to an e-mail request for comment on the ruling.

“Even if the court is to accept as true that there have been material misrepresentations” the claims must be dismissed, Bransten said. “Deception without damages is not actionable.”

The case is Dexia SA/NV v. Morgan Stanley, 650231/2012, New York State Supreme Court, New York County (Manhattan).

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